The impact of the pandemic on multifamily investments seems mostly behind us, with some lingering bruises. Fortunately, the market has been strong for the past year and will likely continue during 2022, though probably at a less active pace.
Here are the things I’m watching and concerned about for 2022:
Markets have a way of finding equilibrium. At the height of the pandemic, there was uncertainty in the market, and the transaction pendulum swung far to the slow side because few deals were being bought. When we started feeling more comfortable that the pandemic tunnel had a light at the end (resulting in lenders getting back to business) and the election was behind us, the dam broke and all the pent-up capital came flooding back into the market. This caused the transaction pendulum to swing hard in the other direction. It’s been a seller’s market for the past 12 months. Again, markets find a way to create equilibrium. I don’t believe the pendulum will swing so far that it becomes a buyer’s market, rather I believe the remaining pent-up capital will have found its home by mid-2022, and the transaction wave of activity will begin to normalize to a more predictable/historical flow of capital. I think this pace will begin toward the end of the second quarter of 2022.
Interest Rates Rising
Interest rates have been at unusually low levels — partially market-driven, partially artificial from fiscal policy — since the crash back in 2008. We seem to be entering a period of economic growth in the economy, and the CPI index is climbing to its highest level in many years (paywall). Basic economics dictates interest rates will rise. Rising interest rates will affect cash flow and thus cap rate for commercial assets and the inevitable slowing of transaction velocity as sellers and buyers adjust to new norms. I anticipate interest rates will be 100 basis points higher 365 days from now.
Healthy) Affordable Housing Initiatives Increase
While certain periods of crisis need extreme measures, I think the housing protection measures put into place throughout the pandemic were detrimental to the industry and affordable housing. Initiatives such as eviction moratoria, rent control or free rent do not support the creation of housing nor the business of owning an investment property. Housing providers bore the brunt of broad-stroke changes to their businesses, including inability to collect rent or relocate residents not paying — without mortgage, repair and maintenance or property tax relief. With these initiatives behind us, in 2022 I think we will see more public and private partnerships begin to take shape. I anticipate forward-thinking states and cities will create incentives for housing providers to improve their properties and keep rents at affordable levels by offering property tax relief incentives.
I predict that 2022 will have less transaction volume than 2021 but that it will still be a strong investment year nonetheless. Rents are rising, occupancy is strong, and new construction is still prevalent in most markets. Both interest rates and cap rates will likely increase, but property values per unit should continue to grow as rent and economic growth increase net operating incomes as an offset. The coming year should be a strong multifamily market, although a bit more balanced between sellers and buyers than 2021.
About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors. We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.